Bitcoin’s Fate Uncertain as SEC Chief Gary Gensler States “It's Unlikely… to Be a Currency” During Law Student Debate

Gary Gensler's Views on Bitcoin and Cryptocurrency's Future

During a recent discussion at the NYU School of Law on 9 October 2024, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler expressed scepticism about the potential for Bitcoin (BTC) and other cryptocurrencies to be widely adopted as a form of payment.

Instead, he suggested that they would more likely be regarded as a store of value.

Addressing an audience member's inquiry about the value of cryptocurrencies, Gensler reflected on their original purpose of existing outside governmental control and the implications of regulatory oversight.

Gensler noted,

“These debates literally go back to Plato and Aristotle. This is 3,000 years of history. Hundreds of great nations, thousands of nation-states – we tend to have one currency per geographic economic state. We tend even not to have bimetallism.”

He highlighted a fundamental principle in economics: that nations generally prefer a single currency to maintain economic stability and cohesion.

The Nature of Currency: What Does Gensler Think?

Citing Gresham's Law, which asserts that “bad money drives out the good,” Gensler emphasised that the public desires a single currency unit that acts as a store of value, a medium of exchange, and a unit of account.

He remarked,

“You want one currency unit because it's a store of value, a medium of exchange, a unit of account. It all has tremendous economics of networks.”

He reiterated his belief that cryptocurrencies are unlikely to serve as currencies unless they can demonstrate their utility through consistent disclosure and practical application.

Gensler likened this process to how investors choose among thousands of securities on the stock exchange.

Addressing Fraud in the Crypto Space

In his discussion, Gensler defended the SEC's vigorous enforcement actions against crypto companies, asserting,

“Without a cop on the beat, will all our laws be enforced?”

He articulated a broader perspective on human behaviour in finance, stating,

“In finance … we play near to the line.”

The enforcement actions, according to Gensler, are necessary to ensure compliance and maintain the integrity of the financial system.

He characterised the cryptocurrency landscape as fraught with “a lot of fraudsters, a lot of grifters, a lot of scams,” adding that many prominent figures in the sector are either imprisoned or awaiting extradition.

Is the Howey Test Sufficient for Crypto Regulation?

During the fireside chat, former SEC Democratic Commissioner Robert Jackson Jr. challenged Gensler on the appropriateness of applying the Howey Test — a legal standard established by the Supreme Court in 1946 for determining investment contracts — to modern cryptocurrency technology.

Robert Jackson Jr. currently serves as co-director of the Institute for Corporate Governance & Finance at NYU School of Law.

Gensler firmly maintained,

“Look, it's the law of the land and I took an oath of office to do it, but it also protects investors.”

He elaborated on the core tenets of securities laws, emphasising the critical role of investor choice and disclosure.

As Gensler explained, the SEC's framework does not require a new regulatory structure.

Instead, he pointed out,

“Just because people don't like the law doesn't mean there's no law.”

He articulated that this existing legal framework helps investors understand what constitutes an investment contract and thus a security.

The SEC's Stance on Crypto Asset Securities

When pressed about the SEC’s terminology, Gensler clarified that the agency's references to crypto asset securities encompass the entirety of contracts, expectations, and understandings tied to asset sales.

He acknowledged previous confusion regarding the agency's position but asserted that both the SEC and the courts have consistently communicated their stance over the years.

One student queried Gensler about the potential impacts on token utility should they conform to SEC regulations.

Gensler reiterated that the SEC remains “merit-neutral,” affirming that the investing public will ultimately determine the utility of these tokens.

He concluded,

“It's unlikely this stuff is going to be a currency. It's going to have to show its value through disclosure, through use.”

This encapsulates Gensler's cautious approach toward cryptocurrency, balancing the need for regulatory oversight with the intrinsic value that can only be established through real-world application and investor transparency.